The opinions here expressed strictly are my own. I serve as senior advisor, economics, for American Principles in Action. I am editor-in-chief of thesupplyside.blogspot.com, and am, with Charles Kadlec, the author of "The 21st Century Gold Standard: For Prosperity, Security, and Liberty," available for free download in ebook form here. Charles Kadlec and I are co-editors of the Laissez Faire Books edition of Copernicus's Essay on Money.
I also authored "The Websters' Dictionary: how to use the Web to transform the world," which won the “Trophée du choix des Internauts” (“The People's Choice”) in the World e-Democracy Forum Awards, 2010, Paris, France. (Download a free and complete eBook version here.) I also manage The Gold Standard Facebook page.
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Signs Of The Gold Standard Emerging From Great Britain?

Comes now to respectful international attention a volume entitled War and Gold: A 500-Year History of Empires, Adventures, and Debtby Member of Parliament Kwasi Kwarteng. This near-perfect volume appears with almost preternaturally perfect timing around the centenary of the beginning of World War I and, with that, the end of the classical gold standard. It, along with the work of Steve Baker, MP (co-founder of the Cobden Centre), constitutes a sign of sophistication about the gold standard in the British House of Commons.

Kwarteng, the most historically literary Member of Parliament since Churchill, is an impressive figure. As War and Gold‘s jacket flap biography summarizes, “Kwasi Kwarteng was born in London to Ghanaian parents in 1975. … After completing a PhD in history at Cambridge University, he worked as a financial analyst in London. He is a Conservative member of parliament and author of Ghosts of Empire: Britain’s Legacies in the Modern World.” Kwarteng thus possesses four crucial skill sets: an international, multicultural, perspective; rigorous training as an historian; direct experience in the financial markets; and the perspective of an elected legislator. It shows.

War and Goldis a compelling successor to Liaquat Ahamed’s delightful and invaluable The Lords of Finance, awarded the 2010 Pulitzer Prize in history. Kwarteng delivers up a successor volume worthy of such a prize. It extends Ahamed’s temporal framework by a factor of ten, to 500 years. Kwarteng, too, has compelling narrative virtuosity. His book is full of dramatic, charming, often wry vignettes of fascinating characters — heroes and villains, adventurers and knaves — spinning around, and off, the axis of the gold standard, in war and in peace.

Let us pause to pay tribute to Kwarteng’s Ghanian ancestry. Ghana, once known as the “Gold Coast,” was part of the Ashanti Empire. Ghana is a too-often overlooked gem of civilization. The most iconic piece of Ashanti regalia, as described by Wikipedia, was a Golden Stool:

The Golden Stool is sacred to the Ashanti, as it is believed that it contains the Sunsum viz, the spirit or soul of the Ashanti people. Just as man cannot live without a soul, so the Ashanti would cease to exist if the Golden Stool were to be taken from them. The Golden Stool is regarded as sacred that not even the king was allowed to sit on it, a symbol of nationhood and unity.

War and Gold provides a literary symphony in four movements.

Its first movement commences with the story of the Holy Roman Emperor whose wars bankrupted his empire. This is counterpoised with stories of rapacious Conquistadors, especially Pizzaro plundering the Inca for their gold, “the sweat of the sun,” and silver, “the tears of the moon.”

Kwarteng thereupon moves smartly to the military, political and economic skirmishing between France and England; the upheavals produced by the American and French revolutions and their aftermaths; the prosperity and stability of the Victorian era… and the rise of the United States. Many of our economic challenges have a long pedigree. The fundamental things don’t change as times goes by.

Its second movement, describing the epic era of the first World War, notes that this war destroyed the classical international gold standard. Chapter 9, “World Crisis,” contains the only significant point of confusion in this otherwise masterful work: the attribution to the gold standard of the Great Depression. That error is widespread. It is a crucial mistake to dispel for the discourse to move forward. Call it the Eichengreen Fallacy.

Prof. Eichengreen, author of Golden Fetters, was and remains non-cognizant of a subtle but crucial aspect of world monetary history — and, apparently, of the works of Profs. Jacques Rueff and Robert Triffin elucidating the implications. Eichengreen blundered by attributing the Great Depression to the gold standard. This, demonstrably, is untrue. That claim has led the discourse astray.

The classical gold standard, as Kwarteng points out, collapsed under the pressure of the first World War, long before the Great Depression. The classical gold standard was suspended when the Depression hit.

An attempt was made to resuscitate the gold standard in Genoa, in 1922, putting in place what that great French classical liberal economist Jacques Rueff called “a grotesque caricature” of the gold standard: the gold-exchange standard. Genoa authorized a deformed pastiche of gold and paper currency as official central bank reserve assets.

Genoa set up a system mistaken (then as now) as equivalent to the classical gold standard. The inclusion of (gold-convertible) currencies as an official reserve asset for central banks thwarted the ability of the system to extinguish excess liquidity balances. This, due to an intrinsic moral hazard not fully grasped even by many gold standard proponents, led to a systemic inflation — increasing all commodities except, of course, as monetized, gold. Key classical gold standard advocates, such as Rueff protégé Lewis E. Lehrman (with whose Institute this writer has a professional association), consider this the key cause of the Great Depression.

FDR did not, despite his grandiose declaration to that effect, end the gold standard. FDR performed an appropriate and crucial revaluation of the dollar from $20.67/oz to $35/oz. This was utterly needed to adjust for distortions caused by the inherent defect of the gold-exchange standard.

The revaluation worked and to stunning (if temporary, likely due to a subsequent Treasury decision to sterilize gold inflows as suggested by Calomiris, et al) effect. As described by Ahamed:

But in the days after the Roosevelt decision, as the dollar fell against gold, the stock market soared by 15%. Even the Morgan bankers, historically among the most staunch defenders of the gold standard, could not resist cheering. ‘Your action in going off gold saved the country from complete collapse,’ wrote Russell Leffingwell to the president.

Taking the dollar off gold provided the second leg to the dramatic change in sentiment… that coursed through the economy that spring. … During the following three months, wholesale prices jumped by 45 percent and stock prices doubled. With prices rising, the real cost of borrowing money plummeted. New orders for heavy machinery soared by 100 percent, auto sales doubled, and overall industrial production shot up 50 percent.

The dollar had not, in fact, been taken “off gold.” As Kwarteng astutely notes, “The United States, as already stated, was still on gold, but it had devalued the dollar by over 50 per cent.”

Given Kwarteng’s current and, likely, future importance to the world monetary discourse it really would be invaluable were he to master the arguments of Jacques Rueff, and of Lewis Lehrman, as well as those of Triffin (who shared the same diagnosis while offering a different prescription). It is important, for the long run, to recognize the innocence of the classical gold standard in the matter of the Great Depression and to grasp the insidious toxicity of the gold-exchange standard, which Rueff termed “an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal.”

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